by Helen Lachs Ginsburg, Professor of Economics Emerita, Brooklyn College of the City University of New York, and NJFAC Executive Com., and Gertrude Schaffner Goldberg, Prof. of Social Policy, Adelphi University School of Social Work, and Chair, NJFAC
Regardless of race or ethnicity, a job at a living wage is the mainstay of a decent standard of living for most working age Americans and their families. However, Social Security, the nation’s largest family protection program, is a much needed complement. America’s most popular and successful social program, Social Security provides a steady, reliable income for 45 million elderly and disabled workers of all races and income levels, as well as for many of their dependents and those of deceased workers [See Uncommon Sense 24, “Social Security Isn’t Just for Seniors”]
Before Social Security was enacted, organized business and Republicans bitterly opposed it. For example, Congressman John Taber (R-NY) said, “Never before in the history of the world has any measure been brought in here so insidiously designed as to prevent business recovery, enslave workers and to prevent any possibility of employers providing work for the people.” But due to fear of reprisals at the polls, most Republican opposition collapsed.
Since Social Security’s enactment in 1935, conservatives have continued to criticize it. But its popularity saved it from frontal attacks. More typical have been attempts to weaken support among Social Security’s varied constituencies, including youth and minorities. Other attacks try to generate support for changes that will actually weaken the system but claim to strengthen it. A prime example is the drive toward privatization.
One criticism of Social Security is that it is unfair to African-Americans and other minorities, which implies that it is not an important program for them. Nothing could be further from the truth.
Social Security: Essential for Minorities
Social Security is essential for minorities: minorities rely on it for more of their retirement income than whites; Social Security reduces minority poverty; the progressive formula used to calculate Social Security payments is beneficial for minorities (and other low earners); Social Security Survivors’ and Disability Insurance is especially important to them. And, with the minority population of the United States increasing at a faster rate than the white population, a growing proportion of people will rely heavily on Social Security in the future.
Minorities Rely on Social Security for More of Their Retirement Income
Social Security benefits are important to most retirees, all the more so since pension coverage has declined for all workers. But Social Security payments are especially important to minorities, who are more likely than others to have little or no other retirement income.
Among private sector workers 21 to 61 years old, about one in three African-Americans and one in four Hispanics had pension coverage in 1993 (latest reliable date), compared to nearly half (45 percent) of whites. This gap follows them into retirement. Proportionately fewer elderly minorities than whites receive any pension income. Minorities, whose average earnings are
considerably less than those of whites, also have far less wealth. Thus, they are less likely than others to have income from savings, stocks and bonds, and other income-generating assets. As a consequence, Social Security is a much more important source of their retirement income. In 1996, almost half of minorities collecting Social Security relied on it for more than half of their income compared to one in three whites. And one in three African-American and Hispanic beneficiaries but only one in six whites relied on Social Security for all of their income.
Social Security Reduces Minority Poverty
Blacks, on average, earn less and suffer from more unemployment during their working years than do whites. Social Security payments are related to a worker’s covered earnings and years of employment and are likely to be negatively affected by fewer years of employment. African-Americans, as pointed out, also have less income from pensions and assets. Thus, poverty is more widespread among older African-Americans. In the late 1990s, nearly one in four African-Americans 65 and older was poor (using the official poverty standard) compared to less than one in ten of their white counterparts. Without it, around 60 percent of elderly African-Americans and Hispanics would have been poor, compared to slightly less than half of the white elderly.
Progressive Social Security Formula Benefits Minorities
Social Security payments are based on a progressive formula that considers a worker’s prior earnings. That is, low-wage workers receive a higher proportion of their past earnings than do average or high-wage workers, although the latter receive larger Social Security checks. Since minorities have lower average earnings, they benefit from the progressive formula even as they end up with smaller average monthly payments than whites. The discrepancy is due to inequality in the labor market, but Social Security partially offsets it. However, the payroll tax that finances Social Security is regressive. Because Social Security taxes are not paid on wage and salary income above $80,400 and minorities tend to earn less than whites, they are more likely than whites to pay Social Security taxes on all of their wage and salary earnings.
The Earned Income Tax Credit was designed to take the sting out of the regressive payroll tax for families with children, but that is not sufficient. Social Security financing could be made more progressive in a variety of ways that deserve wider public debate. For example, taxing all of a person’s earned income, as is the case for Medicare, is one way; another would be to make the payroll tax more progressive by introducing graduated rates—that is, lower rates for low-wage than for middle- and high-wage workers. Alternatively, part of Social Security could be financed from general revenues, which come from taxes on all types of income, including interest, dividends, and capital gains, not just on wage and salary income. Indeed, the architects of Social Security in the 1930s thought that general revenues would eventually be needed to finance part of Social Security benefits. In any case, the current limitations of the payroll tax, which Congress could remedy, should not be used as a criticism of Social Security itself.
Social Security Survivors’ and Disability Insurance Essential
In the United States, African-Americans do not live as long as whites. Better education, health care, working conditions, and other progress have decreased this well-known difference in life expectancy in the past half century. But, for reasons including higher infant mortality, persistent poverty, discrimination, more dangerous jobs, and less access to medical care, a significant 0gap remains.
Those who claim that Social Security does not benefit African-Americans often point to this lower life expectancy. A smaller proportion reach retirement age, and those who do will, on average, not collect benefits as long as whites. But poorer health during working years and more premature deaths mean that disability and survivors’ benefits are more important to them. And progressive benefits more than offset the difference in longevity, so that the claim of some conservatives that minority men earn a negative return on their Social Security taxes is wrong. [The Actuary, Sept. 1998]
A larger percentage of disadvantaged minority groups depend on disability benefits than do whites because low-income workers have much higher rates of disability. Thus, about half of African-American and other minority beneficiaries receive retirement benefits (which include worker, spouse, and children’s benefits), compared to nearly three out of four white beneficiaries. Minority beneficiaries, however, are much more likely to get disability and survivors’ benefits than whites. One out of four African-Americans but only out of eight white Social Security beneficiaries collect them. One out of four benefits awarded to surviving children goes to African-Americans even though they make up only 15 percent of the population of children under 18 years old.
Toward the Future…
The gaps in life expectancy, disability rates, wages, and unemployment should be reduced and then eliminated as quickly as possible through appropriate government policies such as: universal health care, decent housing for all, safer workplaces, anti-discrimination and affirmative action; more funding for education of disadvantaged groups; and jobs for all at living wages. These policies would help, as would rolling back the Social Security retirement age, which is gradually rising to 67 by 2022.
Privatizing and weakening Social Security’s basic protection in other ways will not help but will worsen the situation by jeopardizing the income that is so necessary for minorities. For example, according to a recent study by National Urban League, the private account of a typical black man who dies in his 30’s would cover only 2% of survivors’ benefits under current law. As Urban League’s Maya Rockeymoor, Senior Resident Scholar, put it:
… Social Security is more than a retirement program—it is an insurance program that takes care of vulnerable families at all stages of life. Funding private retirement accounts by diverting money away from the current system would increase retirement insecurity and undermine the viability of the survivor and disability components of the social Security system—the very programs upon which African-Americans and their children heavily rely.
With minorities becoming a larger proportion of the U.S. population, more of the population will rely on Social Security in the future. Thus, the system needs strengthening to help low-wage workers, who are disproportionately minorities. And policies such as full employment at decent wages are fundamental to improvements in Social Security benefits. Such a policy would raise the earnings of low-wage workers and increase their future Social Security benefits at the same time that it would add more money to the Social Security Trust Funds. Nonetheless, it is important to raise the special minimum benefits paid to lifetime, low-wage workers and to strengthen Social Security in other ways that are especially important to minority workers and their families.
Note: The data are from Alexa A. Hendley and Natasha Bilimoria, “Minorities and Social Security: An Analysis of Racial and Ethnic Differences in the Current Program,” Social Security Bulletin 62, 2 (1999): 59-64.
Editor: June Zaccone, Economics (Emer.), Hofstra University
©National Jobs for All Coalition 2001